FRANKFURT, 12-11-2014 — /EuropaWire/ — For the first time since December 2012, the majority of German SMEs take a pessimistic view regarding the business performance in a six-month horizon. The expectations dropped by 5.0 points to -4.1 balance points. This is the result of the KfW-ifo SME Barometer for October 2014. Although SMEs still assess the current business situation as being positive (+0.1 points to 20.3 balance points), the general SME business climate posted the seventh decline in a row based on a clear drop in expectations (-2.5 points to 8.1 balance points). Therefore, the sentiment at the beginning of the fourth quarter is even worse than at the end of the third quarter. Following the unexpected decline in economic output seen in the spring, the German economy is caught in a phase of weakness that seems to be establishing itself. Companies are concerned and are holding back investments on the back of thwarted growth expectations in Europe and numerous geopolitical risks.

The sentiment among large companies, however, is currently even worse than among SMEs. The indicator of their expectations already suffered a sudden hefty downward correction in September when it fell below zero. While the expectations of large companies seem to be stabilising at this below-average level (+0.5 points to -5.1 balance points), the downward trend has reached the business assessments that plummeted in October. They lost 8.0 points and are down to a mere 8.0 balance points. The business climate among large companies is thus only slightly above the long-term average (-3.5 points to 1.6 balance points).

The economic weakness is now threatening to spill over to the previously reliable drivers of domestic demand, i.e. the labour market and consumption. First warning signals are the pronounced decline in employment expectations seen in October, especially among large companies (SMEs: -0.5 points to 6.9 balance points; large companies:

“The disappointing October results are owed primarily to the difficult international environment that is weighing on export companies and manufacturers of capital goods. In view of weak demand, the boost of investments by German companies that we had hoped for is further deferred,” says Dr Jörg Zeuner, Chief Economist of KfW Group. “The bad results in retail sentiment and employment plans emphasize that Germany cannot manage a sustainable upswing without Europe. We expect the stagnation of the German and European economy to last into the next year”.